The equation for the slope of a line and the equation for the variable cost using the high-low method are identical. From the high-low method, we learn that the variable cost per unit is the difference between the total costs at the high and low points divided by the difference in the units produced at the high and low points. In other words,

When computing the variable cost per unit and the fixed cost using the high-low method, we assume that the costs are linearly related to the total number of units. In other words, the total cost line can be graphed as a straight line. For this reason, we can use the mathematical equation for a line to help us approximate the variable and fixed costs.

Transcribed Image Text:

Y₁-Y/₂ 2 x₁ - x₂ X